Home Articles Economic Landscape of Pakistan and Budget proposals for 2019/20 showing worst case...

Economic Landscape of Pakistan and Budget proposals for 2019/20 showing worst case Scenario


Before going on budget 2019/20 announced just after one day of Zardari arrest and Hamza Shahbaz to overshadow the budget proposals, let us see first, what its effects would be.

In lump sum it is anti investment and anti common man budget. It would bring at least Rs 5000/ per month impact on every family due to imposition of taxes on almost every food item. Just imagine that with a middle class income ranging from Rs 50,000/- to one lac, deduction of immediate Rs 5000 per month from income, what havoc it would create, and for the people earning below Rs 50000/- how it would make Pakistan hell for them. The reason for this is not merely old government policies but people sitting in PTI government with no medium and long term vision and creating chaos in the economy with their U Turns and if and but policies and finding solution for everything by sending every opposition leader in to the jail. Immediately it would support IMF policies with one point agenda to make PKR further depreciate. God forbid people in this way are going to see even PKR going above Rs 200 per US$. This would create further inflation making life of common man more miserable.

According to Economic Survey 2018-19, the economy grew at an average rate of 3.29 per cent (provisional) in fiscal year 2018-19 against an ambitious target of 6.2pc set in last year’s budget

Sector-wise growth rates stood at:

  • Agriculture: 0.85 per cent (against target of 3.8pc)
  • Industry: 1.4pc (against target of 7.6pc)
  • Services 4.7pc (against target of 6.5pc)

Total revenue remained at Rs3, 583.7bn (9.3pc of GDP) The Federal Board of Revenue’s tax receipts from July-April 2019 remained at Rs2, 976bn.

The government’s total expenditure increased by 8.7pc from July-March 2019 to Rs5, 506.2bn (14.3pc of GDP) against last year’s spending of Rs5, 063.3bn (14.6pc of GDP).

Development expenditure decreased to Rs655.9bn this fiscal year compared to last year’s expenditure of Rs993.3bn, exhibiting 34pc negative growth compared to 23.6pc positive growth recorded last year.

Exports fell by 1.9pc despite exchange rate depreciation of almost 40%, while imports declined by 4.9pc.

The Consumer Price Index witnessed a rising trend in fiscal year 2018-19. It increased to 6.8pc and then went to 7pc against the 3.77pc measured in the corresponding period last year.

Remittances saw an 8.45pc increase in July-April 2019 and are likely to reach $ 21 billion.

Foreign investment dropped by 51.7pc in July-April 2019 to $1.377bn compared to $2.85bn in the same period last year.

For 2019, military has announced that they are “foregoing routine increase in annual defense budget for 2019.  It is appreciable however that it needs to be moved towards broader theme of reforms. To begin with, defense allocations can benefit more from greater transparency and disclosure.

Now we come to the Federal Budget 2019/20 announced by Hmmad Azhar Minister of Revenue on 11th June in the parliament amid circle of opposition protestors, which was expected.

  • Budget outlay as Rs7, 022bn — 30pc higher than last year.
  • Federal revenues to be Rs6, 717bn — 19pc higher than last year.
  • FBR tax target set at Rs5, 550bn i.e. Tax to GDP ratio by 12.6pc.
  • Rs3, 255bn to be disbursed to provinces via the 7th NFC award — 32pc higher than last year.
  • Budget Deficit — Rs3,560bn
  • The National Development Program will have a total size of Rs1,800bn Of this, Rs950bn will be spent by federal
  • The government’s running expenses will be slashed to Rs437bnfrom Rs460bn.
  • Pakistan’s total debt has reached Rs31 trillion.
  • Foreign exchange reserves had dropped below $10 billion.
  • In 2018 the current account deficit had reached a historic peak of $20bn, while the trade deficit had reached $32bn. The fiscal deficit was more than Rs2.26tr. [These deficits] were attributable to financial mismanagement in an election year.”However this year current account deficit would range below $ 15 billion.
  • The budget has recommended a 10 per cent increase in the salaries for government employees from Grade 1 to 16, including armed forces employees.
  • There will be 5 per cent ad hoc relief for government employees from Grade 17 to 20. There will be no increase in salaries for civilian government employees from Grade 21 to 22. There will also be a voluntary 10 per cent cutin the salaries of all ministers including the prime minister.
  • The budget has also recommended that pensions for government employees be increased by 10 per cent and the minimum wage be set at Rs17, 500.
  • Away from economic survey the budget projects the economy will grow at a rate of 2.4 per cent ─ a massive decline from last year’s projected growth rate of 6.2pc ─ and its revised growth rate of 3.3pc.The last time Pakistan saw a GDP growth rate resembling this figure was amid a global financial crisis during the PPP era in FY2009-10, when the revised growth rate came to 2.6pc.
  • Inflation is estimated to remain between 11-13pc this fiscal. Pakistan last saw inflation touching 11.5pc in FY2011-12.
  • Overall, current expenditure has increased substantially this year, while development expenditure has fallen. Current expenditure is estimated at Rs6, 192.9bn in FY20 compared to last year’s estimate of Rs4, 780bn ─ an increase of 75pc.
  • Over half this amount (Rs4.04 trillion) is dedicated to interest payments on past domestic and foreign debts and defense.
  • Interest payments on domestic debt are projected to increase by Rs1.14tr in FY20, while interest payments on foreign debt are expected to increase by Rs130bn.
  • Interestingly, the defense budget did not see a cut this year as expected. In fact, it rose by Rs52bn from last year’s budgeted amount of Rs1, 100bn to Rs1, 152.54bn.
  • Other expenditures, which include pensions and running of the civil government, amount to Rs2, 149bn.
  • Within current expenditures, budgeted foreign loan payments in FY20 saw an increase of nearly Rs494bn compared to last fiscal.
  • Total development expenditure this year is expected to amount to Rs949.89bn ─ a drop of 17.5pc compared to last year’s budget.
  • Of this amount, Rs701bn has been allocated to the federal Public Sector Development Program (PSDP), while Rs912 has been allocated to the provincial PSDP.
  • Non-PSDP development expenditure, which includes expenditure heads such as Benazir Income Support Program and Kamyab Jawan Program, is estimated at Rs85.8 million.

However from here the main question arises that from where the money would come?

  • The government estimates net revenue will reach Rs3, 462.1bn in FY20 ─ an increase of 11pc from last year’s budgeted net revenue.
  • The fiscal deficit, or the shortfall between the government’s revenues and its expenditures, amounts to Rs3, 151.2bn or 7.2pc of GDP.
  • Total tax revenue has been budgeted at Rs5, 822bn. The bulk of the revenue will be drawn from FBR taxes, which are projected to reach Rs5, 555bn in the coming fiscal year.
  • With the government having set an ambitious target for revenues for next fiscal — almost 20pc higher than last year — all eyes will now turn to the Federal Board of Revenue as it attempts the challenge set out for it under its new chairman.
  • 11 taxable slabs at progressive tax rates from 5 per cent to 35 per cent in Federal Budget 2019-20 for salaried people have been set with income of more than Rs0.6 million per annum.
  • Further, eight taxable slabs at tax rates from 5 per cent to 35 per cent were introduced in Federal Budget 2019-20 for non-salaried people with an income of more than Rs0.4 million per annum.
  • The government will increase the rates of additional customs duty on imported items that are considered ‘non-essential items’. Going by past announcements, this will likely mean imported cheese, confectioneries and condiments among other things.
  • Edible oils, ghee and cooking oil will now be charged 17pc FED, which will eat into everybody kitchen budget.
  • The government is increasing federal excise duty (FED) on ‘aerated water’ (your soft drinks) from 11.5pc to 14pc. Rooh Afza will also be getting more expensive as sugary drinks such as juices, syrups and squashes will be subjected to FED at 5pc of their retail price.
  • So in overall  More taxes have been imposed on cooking oil, sugar, juices, soft drinks, cream, powdered milk, cooked chicken, mutton, fish products, cigarettes, cement, marble, gold, silver and diamonds
  • CNG is also going to get more expensive as CNG dealers will be charged higher taxes. The government is also withdrawing tax exemptions on the import of LNG and substantially increasing the rate of FED applicable from Rs17.18 per 100 cubic meters to Rs10 per million British thermal units (MMBTU).
  • FED on cement is also being increased from Rs1.5 per kg to Rs2 per kg.
  • On the upside, sales tax on food supplied by restaurants, bakeries and caterers will get quite a bit cheaper as sales tax is slashed from 17pc to 7.5pc under the new budget. Eating out will get a little easier on the pocket.


  • The rate of sales tax on concentrated milk powder has also been proposed to be reduced, which will help parents.
  • The government has proposed the removal of value added taxes on mobile phones and satellite phones, as well as the reduction of regulatory duty on mobile phones.
  • It has also proposed a reduction of regulatory duty on tires.
  • Jewellery is going to get more expensive. Gold and silver are also going to be taxed at the rate of 1pc, while gold used in jewellery will be taxed at 1.5pc, diamonds at 0.5pc and making charges at 3pc.
  • Cars, too, are going to get more expensive. The government wants to impose FED on cars from 0-1000cc engine capacity at 2.5pc of their value; from 1,001cc to 2,000cc at 5pc of their value; and at 7.5pc of the car’s value if it has engine capacity above 2,001cc.
  • The government has granted an exemption of customs duty on import of wood in a bid to discourage people from cutting down forests.
  • In a related measure (which will also help the furniture industry) it has also reduced federal excise duty on wooden sheets that are meant to be used as laminates.
  • In a bid to support tourism related industries, the government has also reduced customs duty on pre-fabricated structures for hotels. As a result, you can expect to see a lot more pre-fab huts in the northern areas, especially in areas which are considered scenic camping spots.
  • Apart from granting exemption from customs duty on more than 1,650 raw materials and industrial inputs, the government has granted considerable relief to industries that use or deal in paper products. It has completely exempted customs duty on raw materials used by the paper industry, and also reduced customs duties on raw material for paper sizing agents, on bobbins and spools made of paperboard, on input goods for paper based liquid food packaging industry, and also on writing and printing papers.
  • Exemption from customs duty has also been granted for machinery parts and accessories used in the textile sector, while customs duties have been reduced on base oil meant to be used as an input for coning oil, white oil and other textile oils.
  • In the pharmacy sector, customs duty has been exempted on 18 medicinal inputs as well as on medicines for certain rare diseases.
  • On the other hand, the special tax regime extended to the steel sector is being abolished, and it will be slapped with a 17pc FED.


  • Five zero-rated industries that enjoyed exemptions from sales tax (textile, leather, carpets, sports goods and surgical goods) will also feel the pinch as the government withdraws special treatment. The government believes these exemptions are being misused and resulting in lost revenues. Therefore, it is reinstating a standard rate of 17pc on all items covered under SRO1125.
  • The rate of sales tax on local supplies of finished articles of textile and leather and finished fabric may be raised from current 6pc for integrated businesses and 9pc for others, to 15pc and 17pc, respectively.
  • Zero-rating of utilities (gas, electricity and fuels) allowed to these export-oriented sectors through various sales taxes general orders have been withdrawn.”
  • In compensation for the new taxes, the government has agreed to refund sales tax to these sectors on an automated basis so that sales tax on inputs is immediately refunded.
  • The government is making it a requirement for all retail shops having an area of more than 1,000 square feet (111 square yards; 3.67 Marla) to integrate their points of sale (POS) with FBR’s computerized systems so that all their sales are reported in real time.
  • Not only that, the government is also tightening its oversight over the cottage industry to redefine it to include enterprises that a) do not have an industrial gas or electricity connection; are b) located in a residential area; c) do not employ more than 10 workers; and d) do not have an annual turnover of more than Rs2 million.

Finally, on the one hand PTI says that the common man will not be affected, we have to keep the common man protected, the common man will not be thrust into difficulty, and on the other hand Tax on sugar has been increased to 17 per cent from the previous 8pc and they say the increase in the price will ‘only’ amount to Rs3.65 per kilograms. On the second part PTI have proposed an increase of Rs25 per sack of cement. What is cement? It will go into construction; every party involved in construction, be it the common man or a big man, will have to face an increased cost of construction. And the Rs5 million homes they will make, their cost would also go up. It has also lamented the increase in federal excise duty recommended to be imposed at 13.2pc on sugary beverages from the previous figure of 11.25pc. What will happen that beverage companies, sugar manufacturers, construction companies all will pass the costs to the customers?


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